Home equity is helping retirees as savings fall short

Baby boomers, who make up the bulk of retirees, are sitting on a record $19 trillion in real estate wealth. For many, that home equity now dwarfs what they’ve been able to accumulate in traditional retirement accounts, turning their real estate portfolio into the single largest component of their net worth.

A new report from the National Institute on Retirement Security finds home equity accounts for about one-third of retirees’ financial assets, while traditional retirement savings make up just a quarter. The median retirement savings was just $40,000, compared with a median value of $130,000 in home equity.

Despite representing a major share of wealth, property and investments deliver just 6% of retirees’ income across race, gender, education, and age. But Realtor.com® senior economist Jake Krimmel says this is a good thing.

“Seniors do not necessarily want to be drawing down on their home equity through potentially expensive products like home equity loans, lines of credit, or reverse mortgages,” Krimmel says. 

Instead of supporting day-to-day expenses, he suggests, “that equity can be tapped in case of emergency, passed on to the next generation, or taken as a lump sum when they sell their home and downsize.”

Even so, the report’s findings tell a cautionary tale of retirement unpreparedness. Social Security accounts for about half (52%) of retirees’ income. Yet, even with a paid-off mortgage, Social Security alone is enough to cover living expenses in just 10 states, according to research from Realtor.com.

Why homeowners are outpacing renters

The report found wide disparities in participation in workplace retirement plans. 

“While there have been some noticeable improvements in the retirement savings system in recent years, many workers are still left out of that system and major challenges lie ahead,” the report’s authors, Tyler Bond and Joelle Saad-Lessler, write.

While a majority of workers (62%) participate in some type of retirement savings, homeownership remains one of the clearest markers of retirement preparedness.

Nearly 80% of adults 65 and older live in a home they (or someone in their household, such as a spouse) own, while about 17% rent. Senior homeowners not only have a higher net worth overall, but they also hold roughly four times the average balance in a 401(k) or 403(b)—about $210,000 compared with roughly $52,000 for senior renters.

It’s a disparity that likely has multiple drivers, and the study’s authors note that further research is needed to unpack the distinction.

But on a surface level, homeowners with a fixed-rate mortgage are largely insulated from the kind of year-to-year payment shocks renters face, making it easier to budget and keep contributing to savings. And homeownership itself tends to reflect the same conditions that support retirement saving—higher and steadier income, access to credit, and the ability to consistently set money aside.

Even among seniors who still carry housing debt, retirement saving is more common: Nearly half have money in a retirement account, compared with about 2 in 5 seniors overall.

When the mortgage outlasts the career

Housing debt is often framed as “good debt.”

Krimmel explains why: “Process of elimination. It’s certainly better than credit card debt, auto or student loan debt, or personal loans. It carries much lower interest rates, and paying it down increases home equity (the forced savings mechanism), all while paying for shelter. None of that is true for other types of debt.”

To his point, the report finds that while workers with student loan debt are more likely to have access to a workplace retirement plan, participate in the plan, and have a positive balance in their account, they also carry lower account balances, are further behind in target retirement savings, and have lower net worths than their peers.

But for seniors who still owe money on their homes, mortgage balances dominate the debt picture. Housing debt accounts for roughly 86% of all debt among older households with a balance, and among retirees in the top income quartile, housing debt is often the only debt they carry—a sign that higher earners are more likely to finance an appreciating asset while avoiding higher-cost consumer debt like credit cards.

It’s an increasingly common phenomenon: Roughly 40% of retirees aged 65 to 79 are still carrying a mortgage, meaning a significant share are managing a monthly housing payment in a phase of life when income is typically fixed.

But Krimmel says this isn’t cause for concern.

“As seniors’ fixed incomes can cover their necessities plus housing costs (mortgage), that’s what matters,” he says. “And unlike the cost of groceries and utilities, the mortgage payments are (in a fixed rate) stable over time. This is a huge benefit when inflation is high, assuming that fixed incomes like Social Security or other pensions get cost-of-living adjustments.”

That’s the “good debt” argument in a nutshell. A stable housing payment keeps costs predictable, while mortgage payments can build equity over time, and equity boosts net worth.

The report notes that property and investments generate just about 6% of retiree income across demographic groups, because home equity is largely illiquid unless homeowners sell or borrow against the home.

“Home equity is not the most liquid type of asset, which makes it a good nest egg,” Krimmel adds. “The fact that people aren’t drawing it down, I think, is a good thing and a sign of financial stability for most.”

Turning bricks and mortar into retirement income

Home equity may be one of the biggest retirement assets Americans have, but housing wealth is especially concentrated higher up the income ladder. For retirees at the 75th percentile of income, home equity accounts for roughly 84% of net worth, the NIRS analysis found.

That matters because the strategies for turning bricks-and-mortar wealth into monthly income tend to require flexibility—selling, moving, renting, or borrowing. And in the inventory-constricted market, those options look vastly different depending on income, health, family needs, and local housing costs.

Vanguard estimates that if retirees extracted the full value of home equity by selling their home and renting in retirement, baby boomer retirement readiness would rise by about 20 percentage points. But the catch is embedded in the premise: Selling a home and renting is a big lifestyle shift. Plus, it assumes a rental market that works for older adults in the places they want (or need) to live.

Home equity can be a stabilizer precisely because it’s hard to spend, giving seniors a reserve they can protect, borrow against only when necessary, or convert into cash at a moment of their choosing. The $19 trillion equity pie may be enormous, but the next chapter of retirement will be shaped by who can actually use it without giving up the stability it’s meant to provide.